SEC changing auditing standards

KAI RYSSDAL: This is Marketplace from American Public Media. I'm Kai Ryssdal.

Senator Paul Sarbanes has retired. Come January Representative Michael Oxley will no longer be chairman of the House Financial Services committee. But the corporate governance legislation they wrote lives on. And on Wednesday, Sarbanes-Oxley will be getting a tweaking. Smaller publicly-owned companies have been complaining about the cost of complying with Sarbox. And they'll get their first crack at regulatory relief when the Securities and Exchange Commission meets to consider some rule changes. From Washington, Marketplace's John Dimsdale explains. ..

JOHN DIMSDALE: Smaller companies say they can't afford the Sarbanes-Oxley requirement that all their accounting procedures be approved by an outside auditor. Earlier this year, an advisory panel at the SEC recommended waiving that requirement for the smallest companies. Instead of an outright waiver, the full Commission will propose a compromise: In the future, CPAs will only need to certify accounting standards that are relevant to that year's financial statements.

The U.S. Chamber of Commerce has lobbied hard for easing Sarbanes-Oxley's compliance costs. The Chamber's David Chavern says something has to be done.

DAVID CHAVERN: At the bottom line, you have to make a practical judgment about risk versus benefit—and you know, saddling small companies with tremendous costs that either push them out of business or push them out of the public markets is, you know, at core, a bad idea.

But defenders of Sarbanes-Oxley say it's at the small company level where many financial frauds and accounting mis-statements begin. Arthur Bowman, the editor of the Bowman First Alert accounting newsletter, says the SEC's compromise to review only the current year's accounting procedures—called the materiality standard—isn't specific enough.

ARTHUR BOWMAN: Who judges materiality? Is it the company? Is it the auditor? Is the auditor gonna be firm on these kinds of issues? So it's a slippery slope.

It'll be spring before the SEC finalizes its regulatory changes. By then, Democrats in Congress promise to hold hearings into the true business costs of complying with Sarbanes-Oxley.